How Carl DeMaio Made His Money

One day in late 1994, a copy of a little-known law landed on Carl DeMaio’s desk.

DeMaio, then a precocious 20-year-old college junior, was working on Capitol Hill at the kind of political job he had wanted since he was a teenager. He had linked up with the Congressional Institute, a nonprofit tasked with teaching the incoming Republican majority how to flex its muscles. He began as an intern, but was already earning a salary developing congressional training programs and arranging retreats.

The law, the Government Performance and Results Act of 1993, came to DeMaio because it had the words “strategic planning” on it.

“They thought, ‘OK, this is Carl’s bailiwick,'” DeMaio said.

And it was.

At the time, few knew anything about the law, which required federal agencies to set specific goals for their performance and measure how they did. DeMaio would help change that. In the process, he would assert himself as an expert in the field, start two million-dollar businesses and set the stage for a political career that now has made him a leading candidate to become San Diego’s next mayor.

The playbook that led DeMaio to fortune as a businessman in Washington, D.C., revealed in interviews with the candidate and 10 others familiar with his time in the nation’s capital, bears remarkable similarities to the one he’s followed in San Diego. Here it’s about the city’s financial problems. There it was government performance. In both San Diego and Washington, DeMaio appeared out of nowhere, seized an issue headed for prominence, worked relentlessly, took credit even when it wasn’t quite due and eventually found real success.

In Washington, DeMaio’s success came in the private sector. But like many businesses in the nation’s capital, DeMaio’s had a direct tie to government. The company he founded sponsored conferences, held classes and consulted government agencies on management. He made millions when he sold The Performance Institute and a spinoff five years ago.

“It was a matter of being in the right place at the right time,” said Walter Groszyk, author of the 1993 law and a retired senior advisor at the Office of Management and Budget. “The way in Washington, how it works, if there’s a vacuum, a policy vacuum or a program vacuum and you’re willing to put in the work, you can readily step into the breach. He saw an opening and took advantage.”

DeMaio said his decision to go into business wasn’t about filling a void, but common sense. He’s a true believer in measuring government performance.

“I saw this as a no-brainer,” he said. “Of course you should do this. Why is no one doing this? This is the greatest opportunity to actually achieve what we want to achieve, which is accountable government, transparent government.”

DeMaio said that every idea he has for San Diego goes back to what he learned in Washington. And every personal dollar he’s been able to put behind his San Diego campaigns goes back to what he learned in Washington, too.

♦♦♦

DeMaio had an idea.

Three and a half years after President Bill Clinton signed the government performance law, no one knew how it might work. The government didn’t know what kind of goals departments should set. Congress didn’t know how it would manage the process. No one knew how the information would be used.

DeMaio thought of a way to answer these questions. And he had a powerful audience.

He believed that Congress could use the law as a tool to reward programs that worked and take money away from programs that didn’t.

DeMaio said he brought this idea to the attention of big names in the Republican leadership: House Speaker Newt Gingrich, Majority Leader Dick Armey and Virginia Thomas, the wife of Supreme Court Justice Clarence Thomas and then one of Armey’s top aides.

Armey and the GOP began wielding the law as a political hammer. They handed out failing grades to numerous federal agencies, saying the departments weren’t living up to their promises or measuring the right things. They threatened to cut funding.

DeMaio became one of the Republican leadership’s salesmen.

He started appearing in newspaper articles on the law’s growing influence. He pitched congressional staff and agency leaders on the importance of performance measurement.

But soon, DeMaio realized he was spending less of his time telling bureaucrats what the party wanted and more on how they could do it.

Another idea came to him.

“I could do a training course on this,” DeMaio said. “I could charge people money for it.”

He did. By then it was 1998, three-and-a-half years after the law first hit his desk and two years after he graduated college. Government types showed up to his first conference, held in a Northern Virginia DoubleTree Hotel ballroom, for a general overview of performance measures and training.

Then he held another one a year later on environmental management. More government types showed up. Soon after, DeMaio incorporated his conferences into a company he called The Performance Institute.

“He entered an empty field and declared himself the best in the field,” said Jonathan Breul, head of the IBM Center for The Business of Government and leader of a coalition that includes DeMaio’s former company.

The Performance Institute’s success depended on the government’s largesse.

The government had to be willing to send workers to the company’s conferences, and hire the company to do training and consulting. To reap that reward, DeMaio had to make a major transformation after leaving the Congressional Institute, where he had done the bidding of the Republican leadership. He turned from partisan soldier into nonpartisan good government advocate.

DeMaio positioned himself the same way that he started in San Diego. By just showing up.

He began going to events put on by nonprofit and good government organizations and volunteering to do legwork like setting up websites for various projects, said Kathryn Newcomer, the director of the public policy school at George Washington University.

Newcomer knew that DeMaio came from the political realm and always thought of him as a partisan. But she said he kept an open mind and wasn’t overly political.

“He knew if he acted like that, he wouldn’t be allowed to come to these meetings,” Newcomer said.

On the eve of the 2000 presidential election, DeMaio joined the libertarian Reason Foundation to lead symposiums on performance-based government. DeMaio got big names from big organizations to sign on to a document outlining the latest ideas in performance management. It was designed for whoever would lead the new administration.

Bush embraced the 1993 law and made performance management a priority for government departments. That was good for DeMaio’s business.

♦♦♦

Wild horses and burros roam the American West. One of them could be yours.

The federal Department of the Interior runs an adopt-a-horse-or-burro program to control the animals’ populations in wildlife reserves.

The department rounds them up, pens them in and waits for some lucky future horse or burro owner to take an animal off its hands. This process costs a lot of money. The department realized that it would save the millions spent caring for the animals if it didn’t corral as many until the public demanded them.

So the program became less burros-on-demand, more burros-by-demand. Taxpayers reaped the benefits.

DeMaio said he had helped the department with the project. And the story became a popular one at Performance Institute conferences. It happened using a performance management technique called activity-based costing. That’s a fancy way of saying that you clearly define what your job is and how to do it efficiently.

If all this sounds like management gobbledygook, it is. But it also could change how the government worked down to minutiae, such as burro handling. DeMaio figured out that the government would pay for its workers to learn.

His company constantly churned out these kinds of conferences. According to an archived 2004 version of The Performance Institute’s website, it averaged almost three a week between June and September of that year. It typically charged between $595 and $1,095 to attend the one-to-three-day sessions. By 2005, 10,000 people a year came to Performance Institute seminars, 95 percent of whom were government workers, according to DeMaio.

“There was no magic to it,” said Breul, the IBM Center’s head. “It was good, solid, two-day training.”

The horse and burro program’s costs continue to be an issue at the Department of the Interior. The program’s $76 million budget increased by almost 275 percent over the last decade, according to department statistics, with animal holding costs making up half the budget.

The Performance Institute did more than just talk about reforms at conferences. Simple descriptions for the company, such as meeting planner, think tank or consultant, don’t fit.

Instead, it’s best to compare The Performance Institute to a college. Its conferences, where experts shared success stories and detailed management practices, were like entry-level classes on performance issues.

The company also offered training on specific management issues, such as budgeting, communications strategies and customer service. Performance Institute employees would go to a government agency or the federal workers would go to the company’s office and spend a day or two on management techniques. This training was like the company’s upper-level classes. The Performance Institute made the bulk of its money from conferences and training, DeMaio said.

Then there’s consulting, the company’s graduate-level offering. Often over a period of months, The Performance Institute would help an agency comply with the long-range planning requirements in the 1993 law or re-examine a particular process.

The company collected $2.7 million in federal consulting contracts between 2001 and 2007, according to FedSpending.org, a website that tracks federal expenditures.

When DeMaio sold The Performance Institute in 2007, it reportedly had 65 employees and its annual revenues reached $10 million. DeMaio also sold a second company, the American Strategic Management Institute, which he had founded in 2003 to provide the same services to the private sector. He has said that company eventually became the more profitable of the two.

Stories about The Performance Institute fit the mold of your stereotypical thriving startup. It started in a small office in a Northern Virginia townhouse where everyone shared one internet line before moving to a larger, sleek space next to a subway station.

DeMaio promoted a flip-flops-and-jeans culture for his 20- and 30-something employees. He hired his younger brother, Chris, and Felipe Monroig, who had boarded with him at a Maryland Jesuit prep school. (Monroig now is DeMaio’s chief-of-staff in his City Council office.) Two Performance Institute employees got married after meeting at work. DeMaio went to their wedding.

DeMaio’s Capitol Hill profile continued to grow during the Bush years. In 2004, he testified before multiple congressional committees. The next year, the Bush administration named DeMaio to an expert advisory panel. DeMaio’s company touted that the Office of Management and Budget, the epicenter of implementing performance reforms, called The Performance Institute the leading think tank in the field.

♦♦♦

Three weeks ago, DeMaio released a City Hall reorganization plan that is startlingly technocratic for someone running for mayor, all full of phrases like “Tiger Team,” “Logic Model” and “Business Lines.” They’re buzzwords from his time at The Performance Institute.

“We’re basically putting the ideas into action,” he said.

At the end of his plan, DeMaio has lofty words for his company. He called it, “the largest government reform think tank in the nation and the leading authority on performance-based management in government, law enforcement, nonprofits and schools.”

But three Washington-based experts familiar with DeMaio and The Performance Institute called that claim overstated. They see his plan more as the work of a politician than of a management expert.

“It’s Carl,” Breul said. “This is a campaign document. It’s full of hyperbole and exaggeration.”

This dichotomy cuts to the core of how DeMaio operates. It’s never been clear, either in Washington or San Diego, if DeMaio is working on behalf of himself or the ideas he’s promoting. He has crossed the boundaries between partisan and nonpartisan, business and politics, and innovator and imitator so often that it’s difficult to understand what’s motivating him on any issue.

“In change (you) have to play the role that you need to play at the time,” he said.

Most shops in the good government world were nonprofits. DeMaio’s Performance Institute, however, was private and for-profit.

That wasn’t always apparent. The Performance Institute used a “.org” web address, which is typically reserved for nonprofits. Until she was interviewed for this story, Patricia McGinnis, a former CEO for the now-defunct Council for Excellence in Government and a co-signer on DeMaio’s 2000 transition report, believed DeMaio’s company was a nonprofit like her organization and most other good government groups.

“Usually when you call yourself an institute, you make that assumption right off,” McGinnis said.

DeMaio wasn’t known in Washington for pioneering big management concepts, but rather taking others’ ideas and running with them. One of his competitors contended he once took that to an extreme.

In 2003, Christopher Wye was planning a major conference on government performance for a center he ran as part of the federally chartered National Academy of Public Administration. Wye said he woke up one morning to find that The Performance Institute had decided to plan its own competing conference and had replicated Wye’s entire website down to its color scheme.

Wye decided to add embossed gold seals to his conference literature and gold seals on his website. They read: “The Original Performance Conference.”

(DeMaio denied copying the website and called the anecdote sour grapes from a competitor.)

While DeMaio’s Washington achievements depended on him transitioning from partisan to nonpartisan, in San Diego he’s gone the other way.

In no small part, DeMaio’s political rise has relied on the financial success of his businesses. He has dumped more than $1 million into his own mayoral and City Council campaigns and various pension and outsourcing ballot measures since he first arrived in San Diego a decade ago.

But for someone who has made transparency central to his ethos as a businessman and politician, he’s released little information about his companies’ finances. Their sale price? Private and covered by a nondisclosure agreement that doesn’t expire until September, he said. It’s the same story for any other financial details about his former companies’ revenues.

San Diego’s finances, though, are a different matter.

DeMaio argues the city still lacks fiscal transparency. That’s why he wants to be mayor. DeMaio’s already anxious to remake San Diego according to the ways he learned in Washington.

Last month, current Mayor Jerry Sanders released his final budget and proclaimed that the city’s longstanding financial crisis had ended. Less than an hour later, DeMaio held his own press conference. The mayor was wrong, DeMaio said. DeMaio demonstrated how he believed the city remained hundreds of millions of dollars in the red.

A reporter asked if DeMaio would include such a deficit if voters put him in charge of next year’s budget.

DeMaio started to answer before the reporter had finished his question. The public, DeMaio said, will be shocked by the inefficiencies in city government that next year’s budget would reveal. The candidate reinforced the point. He told the crowd he already had begun putting the budget together.

“I think when people see next year’s budget,” he said, “it is going to absolutely blow their mind away.”

Liam Dillon is a news reporter for Voice of San Diego. He covers San Diego City Hall, the 2012 mayor’s race and big building projects. What should he write about next?

Written by Liam Dillon

Liam Dillon is senior reporter and assistant editor for Voice of San Diego. He leads VOSD’s investigations and writes about how regular people interact with local government. What should he write about next? Please contact him directly at liam.dillon@voiceofsandiego.org or 619.550.5663.

Not to chang the subject but many "non-profit" companies i my experience are "all profit" they do not pay taxes and they are just business like all others. So I like that his company was not a non-profit. He seems very qualified to me so far.

Not to chang the subject but many "non-profit" companies i my experience are "all profit" they do not pay taxes and they are just business like all others. So I like that his company was not a non-profit. He seems very qualified to me so far.

One follow-up question: Is there any evidence that Mr. DeMaio's organization improved government. Clearly he made money, but the burro program, as reported, sounds like a failure, rather than a success. Can he or does he point to any specific results (i.e. actual performance)?

One follow-up question: Is there any evidence that Mr. DeMaio's organization improved government. Clearly he made money, but the burro program, as reported, sounds like a failure, rather than a success. Can he or does he point to any specific results (i.e. actual performance)?

As I recall, this was Al Gore's creation called "Reinventing Government". He took it upon himself to go into departments and agencies and streamline their operations, making them leaner and saving taxpayers money. As for DeMaio, Northern Virginia is littered with mansions of government contractors that have gotten rich off of deceiving taxpayers into believing that if we outsource to private contractors, we'll save money. Anyone remember Haliburton and KBR?

As I recall, this was Al Gore's creation called "Reinventing Government". He took it upon himself to go into departments and agencies and streamline their operations, making them leaner and saving taxpayers money. As for DeMaio, Northern Virginia is littered with mansions of government contractors that have gotten rich off of deceiving taxpayers into believing that if we outsource to private contractors, we'll save money. Anyone remember Haliburton and KBR?

The endorsements and who's pushing Carl should be questionable enough. Just look at what's going on with the convention center and how "transparency" was clouded just enough to get Carl's main backer on the inside of the hotel deal.

The endorsements and who's pushing Carl should be questionable enough. Just look at what's going on with the convention center and how "transparency" was clouded just enough to get Carl's main backer on the inside of the hotel deal.